If you think about unacceptable risk-taking in business, you might picture an unhinged CEO on a Twitter rampage, or a fluoro-clad bloke hooning around on a forklift. You probably didn’t imagine a middle manager.
Yet Australian and New Zealand middle managers are now the most risk-prone in the world – by a substantial margin. You might think of them as the base-jumpers of global middle management.
And while they may be more devil-may-care than their counterparts overseas, they also outstrip Australian front line and production line workers – who are the safest in the world.
This means that your average shiny-shoes line manager is more of a potential threat to the business than your here today, gone tomorrow shelf stacker.
In fact, according to research by psychometric testing company SHL, one in eight employees at that level is likely to be a risk in terms of the quality of their decision-making and communication.
These people are more likely to miss or overlook data, ignore the impact of their decisions on their organisation and fail to seek other views and opinions.
They may also be unable to articulate their decisions and objectives, be unable to persuade or influence, may lack credibility and may fail to build networks and relationships.
The Australian risk profile
The risk profile of Australian employees completely flips the order seen elsewhere, where people on the lowest rungs of the organisational ladder present the greatest risk (which is what you would expect, given the expected lower levels of training, greater youth and the dangers involved in working with heavy machinery and dealing with the public).
But Australia’s occupational health and safety regime ensures that people who work in the most challenging environments – such as mines and building sites – generally are very well trained. It is their immediate bosses who are toeing the high wire without a safety net.
Australia is bizarrely out of line when it comes to the high-risk profile of its middle managers, the managing director of SHL Australia and New Zealand, Stephanie Christopher, says.
She says her company’s global research over five years of personality assessments and more than 80 million “data points” has illuminated the extent of Australia’s “muddle in the middle”.
“When you have an organisation that doesn’t have a clear direction or understanding of what everyone is trying to deliver, like any business, it becomes a complete rabble,” Christopher says.
“It could cause financial loss to an organisation. It could bring down a bank.”
According to SHL’s report, The Landscape of Organisational Risk, the increasing behavioural risk from middle managers down means that effective decisions from the “c suite” may not be communicated effectively once they reach middle management.
“Middle managers sit at the intersection between strategy and operational execution,” according to the report.
“They must be able to translate executive decisions into effective action, or execution fails.”
So why is the risk profile of companies in this country so out of kilter with the rest of the world?
Christopher says it is a combination of de-layering, the relatively small size of companies in Australia and cuts to training and development programs.
Years of cost-cutting has resulted in a “flattening” of organisations. Layers of middle management have been excised, so there are fewer levels between the leaders and the people “on the ground”.
In companies that are large enough, there can still be enough management-quality people suitable for promotion to middle management to keep things going.
A land of mega-companies
But the Australian business environment is characterised by its small population of mega-sized companies. Only 268 companies have more than 1000 employees and 63 employ more than 4000.
Compare this with the United States, where there is more like 11,000 companies with more than 1000 employees. In the United Kingdrom, there are 900 companies with more than 1000 employees.
With fewer potential managers to choose from, employers in Australia (and New Zealand) have resorted to promoting technical specialists to fill the gaps, regardless of whether they have the skills, temperament or inclination to be good managers.
“The potential opportunities in Europe, the US and the UK are bigger and there are more diverse career paths,” Christopher says. “Here, there are flatter structures.”
The skills gap in middle management has been a concern for many years. Previous research into the potential of future leaders found that Australia scores low for its gene pool of up-and-coming managers
“We have a lot more technical specialists and transactional managers,” Christopher explains.
Eighteen years ago, the Karpin Report alerted Australia to the fact that its managers were out of step with the times and needed to become communicators, leaders, enablers and coaches.
That report concluded that Australian managers were poorly credentialled and trained compared with their US and UK counterparts.
Perhaps the business community was not paying enough attention.
Promoting the wrong people
Today, with budget constraints on salaries and bonuses, employers are using promotion to management as a way to hold on to their prized technical specialists.
But Christopher says that just because someone is an excellent sales representative, it doesn’t follow that they can also manage an office or a team of people.
Some rare companies, such as 3M, offer a two-track system where specialists can get the same sort of financial and status rewards as the most senior executives by progressing to expert status.
But Christopher says that in most companies there is no alternative career path, partly because of their small size.
Promotion into management is the only reward on offer.
Another impact of cost-cutting is that when people become new managers, they stop getting the training that made them such a safe pair of hands when they were operating on the “front line” of the business.
When the global financial crisis hit, business leaders knew they could not afford the risks of cutting training for people at the lower levels of the organisation – and they knew they needed well-trained people at the top to lead their companies through the crisis. So slashing training and development for middle management was seen as the least-worst option.
“There is an absolute gap in the attention given to middle management – especially given the amount of revenue they are responsible for,” Christopher says. “It is seen as discretionary spending”.
A shortage of leaders
The unavoidable result of this is a paucity of people ready to make the transition to leadership level.
“We have a potential leadership shortage,” Christopher warns.
With hiring decisions mostly in the hands of line managers, there is also a risk that they will not be following the right processes to make sure they bring the right people into the business.
“Middle managers sidestep the processes and do their own thing,” she says. “This can have huge implications for the business.”
Christopher, whose company sells psychometric assessments, would of course like employers to pay more attention to the type of people they are promoting and recruiting.
“You have to make sure you are measuring the right things in people,” she says.
“Are you clear [the risk profile of the organisation] is where it needs to be. Are you evaluating your resilience to risk? Where might the gaps be in those managers?
“Risk management is talent management,” Christopher says.
The SHL report also looked at the industries that carry the greatest behavioural risk in the managers and professionals they employ.
The top sectors were travel and leisure (where 18.2 per cent of people exhibit high levels of behavioural risk), oil and gas (16 per cent), utilities (14 per cent), professional services (12.9 per cent) and retail (12.4 per cent).
Travel and leisure companies appear at the top because they draw from a pool of people who are stereotypically young and attracted to adventure.
These are people who make decisions “on the fly” and trust their instincts when making those decisions.
“That doesn’t lead to good decision-making quality,” Christopher says.